It’s kind of weird to say this, but after more than a decade of Bitcoin’s existence, there’s finally some consensus about what it is.
Hardcore Bitcoiners liken it to “digital gold” — a safe-haven asset whose primary use case is holding. And even people who aren’t so into it more or less accept that narrative. Barely a day goes by where we don’t hear from some legendary investor opining on TV, saying something like, “We believe Bitcoin is an emerging store of value, which, like gold, can play an important role in a diversified portfolio.”
Nobody even talks about how it’s not used in day-to-day transactions. Or how it’s too slow or too volatile to be a useful currency. That all may be true, but those are old talking points. By and large, the HODLer narrative has won.
Of course, people still scoff at the idea that something so volatile could possibly be considered a haven. After all, it’s had numerous drawdowns of 50% or more, including quite recently.
But on the other hand, you have to give it some credit. A nearly $1 trillion asset has been memed into existence, despite being backed by nothing.
(This is where someone jumps in and says I’m wrong, and that Bitcoin is backed by electricity and math! But that is wrong. The Bitcoin network is secured by electricity and math. Being secured is not the same as being backed. You’re not entitled to redeem your Bitcoin for anything.)
The fact of the matter is that there’s nothing fundamentally underpinning the value of Bitcoin other than the belief among some people that space on the network is valuable. (The blockchain can be likened in some sense to a big, decentralized spreadsheet and a “coin” could be said to represent some space on it.)
I mentioned above that Bitcoin’s value has been memed into existence. And of course, when it comes to memes and coins, people think about Dogecoin. But Bitcoin is also a memecoin. It’s just that digital gold is probably one of the best memes out there.
Bitcoin also has plenty of absurd memes, like the Magic Internet Money wizard.
Bitcoin shares other properties with gold, beyond just a good meme, though:
- Beyond holding, it’s not used for much. Yes, you can make jewelry with gold. And it has some industrial properties. But for the most part, people hold gold as a financial asset.
- There’s no Saudi Arabia of gold (or Bitcoin). Both can be mined basically anywhere in the world. Unlike say, oil, no one place on Earth has an unusual bounty of access to it.
- Both are energy-intensive and difficult to mine.
- Gold’s supply schedule isn’t quite as absolute as Bitcoin, but barring a gold asteroid hitting the Earth, the total amount of it out there is pretty predictable.
- Bitcoin and gold both have mystical origins. Bitcoin has Satoshi (plus numerous other religious parallels). Gold was viewed by the ancients as divine because it didn’t tarnish.
Again, you can agree or disagree about Bitcoin’s haven properties. But that’s how more and more people see it and use it.
Of course, differences of views have always been part of Bitcoin and crypto more broadly. Within Bitcoin, there have been numerous schisms about where it should go and how it should be used. And of course over time, tens of thousands of more coins have been launched, all with ostensibly different aims or goals.
The last really big Bitcoin battle was from 2015 to 2017 — The Blocksize War — when one faction wanted to make a change in the code to make it more of a spending currency. Without getting too technical, there’s a fairly hard limit to how many transactions the network can process at the base layer, every second. Numerous miners, exchanges and other companies fought to make base-layer transaction throughput faster and cheaper by expanding the size of each Bitcoin block.
That seems innocuous enough, but if you’re trying to be “digital gold”, pushing through big changes is risky. Imagine tweaking gold’s atomic structure to make it even more shiny. That might look good, but then is it really still the same gold that people have trusted for thousands of years? More concretely, adding more capacity was seen by many in the community as a threat to the decentralization of the network.
How is more transaction capacity a threat to decentralization? Well, one core tenet of the community is that anyone anywhere in the world should be able to run a full Bitcoin node, which can download and monitor the entire network. That way, any individual can verify independently what’s going on, how many coins are out there, what transactions have been made, and so on. This can currently be done on basically any cheap computer right now. But if the base layer were to get too heavy (i.e., if too many transactions pile up), it might become prohibitive for anyone to download and watch, meaning only those with stronger computing capabilities could monitor it, thus limiting the breadth of the nodes.
It should be said that while this was a technical fight, there were also political elements, with suspicion on both sides that some players were attempting to control the network for their specific purposes. Anyway, in the end, Bitcoin basically stayed unchanged. Some tweaks were made, but nothing immediately drastic. In general, the core Bitcoin development philosophy is extremely conservative and resistant to change. It’s kind of the exact opposite of Silicon Valley’s “move fast and break things” ethos. It’s not about constant iteration at all. Again, if your goal is to just be gold, this is probably sensible.
Of course, there are people in the world who are drawn into Satoshi’s breakthrough — which for the first time established the ability to create decentralized scarcity online — and who want to do more than just create something to hold. Some people want to do something with this technology. It’s understandable to be honest.
One of the people who wanted to do something with this technology was Vitalik Buterin, who published the Ethereum white paper in 2013, arguing that with some modifications, a blockchain could do so much more than just be a money database. His vision included serving as a repository for identities, decentralized file storage and financial derivatives, among others. Basically a lot of what people are excited doing today with DeFi, NFTs, DAOs, etc. (all of which we’ll get back to) were spelled out pretty explicitly in that paper.
And it’s here that we get to a real schism in the crypto world, one that’s leading two very different ideas about what all this technology is actually for…
Cryptocurrencies vs. Tokens
There is a sense in which both Bitcoin and Ethereum could both be described as the official currencies of two distinct digital tribes. A lot of people obviously own both currencies. And what you’re about to read is a gross generalization. But there is something to it.
Bitcoiners tend to place a high value on adversarial thinking. Trust nobody. Did you buy your Bitcoin on an exchange? Get it off there immediately, and move it to your private wallet so that you don’t have any counterparty risk. Run your own node so you can monitor the network directly. Over the last several months, Bitcoiners on Twitter have adopted the laser-eyes meme.
As the influencer Anthony “Pomp” Pompliano put it recently, it’s “Bitcoiners vs. The World.” Bitcoiners distrust banks. They really distrust central banks. Hardcore Bitcoiners say that you should treat everyone like they’re a scammer. It’s crucial to the Bitcoin project that Satoshi disappeared, because if he were still around then some people would trust his judgment. Bitcoiners also eat a lot of meat. That’s not really related to trust, it’s just a distinct fact about the tribe. That’s not universal by any stretch, but it is a thing.
Ethereans are different. Their founder is still alive and highly influential. Vitalik Buterin doesn’t have laser eyes. But he has been photographed several times wearing T-shirts with kitties on them. Rather than eating meat, he eats a lot of coconut, dark chocolate, nuts and avocados. The biggest decentralized crypto exchange on Ethereum is called Uniswap, and it’s got a whimsical unicorn-themed motif. No macho bro stuff. After Pomp’s tweet about Bitcoiners vs. the world, some Ethereans responded saying their mission is to be for the world, not vs. the world. It’s a different vibe all around.
Here’s a photo of Vitalik eating avocado toast wearing a T-shirt with kitties and rainbows on it. It captures it all pretty nicely.
Again, of course, these are all generalizations. The world is big. Lots of people are part of both scenes. But if there are any anthropologists out there, I’d recommend someone really dig into this and write a book about it, because the difference is noteworthy.
What’s interesting for our purposes is that in addition to being a cryptocurrency, Ethereum is also a token. What’s a token? Well, the easiest metaphor, frankly, is to just think about a token at a Chuck E. Cheese. It’s a kind of money that’s redeemable for goods and services within a very specific environment. At Chuck E. Cheese, obviously, the tokens let you play videogames and pinball and Skee-Ball and whatever else.
In Ethereum world, the currency (ETH) lets you pay a network of computers to run various applications that are built on top of it. One of the biggest applications running on top of the Ethereum network is the aforementioned exchange Uniswap, where you can trade different coins for each other. Each time you place a trade, you have to pay a “gas fee” (denominated in ETH) to the network of computers that processes the transaction. So Uniswap, in this analogy, is like one…